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If the EU has a positive GDP, the Euro would increase in value which would cause EURCAD to also increase in value. If Canada displayed a positive GDP, the CAD would pitch the perfect investment increase in value which would, in turn, cause EURCAD to decrease in value. It may be important to know whether the open positions in a portfolio are correlated.

Both Canada and the Eurozone are affected by the state of the U.S. economy. For instance, the difference in bond yields between Europe and the U.S. has significant bearing on the values of the euro and U.S. dollar respectively. The Eurozone comprises 19 different nations and it is the world’s largest monetary union. The services sector forms the largest share of the Eurozone economy, but the industrial and agriculture sectors also play a notable role in the economy.

  • Using regular major currency pairs can get tiring after a certain period of time.
  • The Euro has historically been an appealing funding currency.
  • When paired together, although still considered a minor, they are invincible.
  • This is because, traditionally, the euro and the Swiss franc have exhibited a strong correlation to one another.

Analyze EUR/CAD and create a trading strategy complete with risk management rules. The tool gives the best size of the position for forex trading. The following tables represent the correlation between the various parities of the foreign exchange market.

Factors Affecting EURCAD

One of the best reasons to trade the EURCAD pair is because it is a cross-currency. Therefore, they can significantly diversify your asset portfolio. Using regular major currency pairs can get tiring after a certain period of time. You’ll be watching the same market patterns over and over again all day. Trading a cross-currency pair would be like a breath of fresh air.

Value at risk is a tool to measure the risk of loss on a portfolio. If the correlation is high and positive then the currencies move in the same way. Economic surprises and positioning for both currencies are around neutral.

Swing Trading

Besides the issue of liquidity, there are also some other drawbacks to trading EUR/CAD. Often called a cross or a cross-currency pair, a minor currency pair compares major currency pairs, excluding the U.S. dollar. When using currency correlation in forex trading, traders can gain knowledge of the positions that cancel each other out, so they know to avoid those positions. Traders can also use currency pair correlation for diversifying a portfolio. As the seventh-most-traded cross currency pair, EUR/CAD represents a significant share of daily forex trading.

eurcad correlation

If the demand for crude oil increases, Canada will export more crude oil and therefore, EURCAD will decrease in value. If the demand for crude oil decreases, Canada will suffer as they wouldn’t be able to export them as much, and therefore, EURCAD will increase in value. This can be seen during the war between Russia and Ukraine where the demand for crude oil has increased which in turn caused EURCAD to decrease in value. Unemployment is also one of the biggest factors that contribute to the value of a currency pair.

USDSGD, GBPNZD at the low-level, EURCAD in Ascending Triangle

However, buying pressure seems to be easing and German/Canadian 2y yields show a strong divergence with the current exchange rate. The Bank of Canada is responsible for the issuing of the CAD notes. The $1 note is popularly known as a ‘Loonie’ while the $2 note is popularly known as a ‘Toonie’. On its own, the Canadian Dollar is the eighth most popular currency in terms of the trading volume.

Since the Euro is not a currency of a single state but of a number of states, it has a lot more opportunities to be impacted due to several states being involved. Any activity that is out of the ordinary in any one of the states can directly impact this valuable currency. Different pip or point valuescan be used to a trader’s advantage when hedging exposure. Monetary policy decisions play a significant role in the movement of EUR/CAD. Any interest announcements by either the BoC or ECB will likely move the pair.

eurcad correlation

CHF is a safe haven currencyand can appreciate dramatically when economic turmoil hits and equities fall, which is one reason that might explain the negative figures. In addition to their geographical connection, the U.S. and Canada are also major trade partners. U.S. economic data usually has a significant impact on the movement of the Canadian fx choice broker review dollar. Due to the two country’s strong connection, EUR/CAD tends to have a strong correlation with EUR/USD. The EUR/CAD pair allows traders to take advantage of the euro’s relatively high volatility without being exposed to undue risk. The pair also stands out for providing unrushed trading opportunities in the fast-paced forex market.

From ECB, Christine Lagarde who is the President of the institution is highly looked upon for her speeches. From BOC, Sharon Kozicki who is the Deputy Governor of the institution is highly looked upon for her speeches. Leveraged trading hantec markets minimum deposit in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances.

For example, +1 would be a positive linear correlation, and implies that the two currencies will always move in the same direction. The EUR/CAD pair is typically more prone to strong trends than the majors. This provides many trading opportunities for intra-day traders and swing traders alike. The discrepancies between euro and Canadian dollar interest rates make EUR/CAD a good vehicle for executing carry trades. Both the European Central Bank and Bank of Canada are majorly responsible for any instability in the EURCAD marketplace.

Correlation measures the relationship existing between two currency pairs. For example, it enables us to know whether two currency pairs are going to move in a similar way or not. The commodities market can be particularly useful for correlation and an example of inter-market trading is the pair of USD/CADand oil.

Management of risks

The ECB and BOC release monthly reports and statements regarding updates to any policy changes. These reports also display the economic and monetary forecasts for the upcoming short-term. Any positive results from the ECB will have a positive impact on the EURCAD. However, any positive results from the BOC will have an inverse impact on the EURCAD. The representatives of these individual banks also hold speeches frequently where they explain these results in more detail. These speeches are just, if not more, important in determining the direction of the EURCAD market.

If the correlation is low then the currencies don’t move in the same way. If the correlation is high and negative then the currencies move in the opposite way. The correlation coefficient highlights the similarity of the movements between two parities. After today’s ECB meeting missed market expectations for a coordinated move of the ECB and the EU. You can disable notifications at any time from your browser. The higher the unemployment rate in the EU, the poorer will be its economy.

When scalping, you could enter trades by following the general momentum of EUR/CAD, i.e. the pair’s trend. You’ll also have to remember that most euro movement coincides with the release of economic news in the Eurozone. The pair is not ideal for traders without an understanding of the complexities of volatility. This can be advantageous when trying to hedge an existing position in one of the major pairs. Additionally, the isolation of EUR/CAD from the U.S. dollar provides insulation from the fluctuations of the major, dollar-based pairs. Socio-economic and political issues in the Eurozone have a significant impact on the euro’s value, and by association, EUR/CAD.

A modification of the correlation, principally over the long-term, may demonstrate that the market is undergoing a change. Find markets that have strong positive or negative correlations with the exposure you are seeking, such as major stock indices . Forex trading, in many cases, may provide more liquidity and 24-hour access to the market.

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